Nokia remains a top stock for JPMorgan, which expects currency translation to aid EBIT. According to JPMorgan analyst Sandeep Deshpande, the impact of the currency translation may not have been reflected in consensus estimates.
Currency impact to aid EBIT
JPMorgan analysts noted that the U.S. dollar’s strength will not improve margins for Nokia but will increase absolute EBIT. And since the currency impact is not reflected in the consensus estimate, Nokia could exceed estimates.
For now, the Street is estimating non-IFRS EBIT to clock in around €1692 million for fiscal year 2015. Considering a full currency effect is taken into account, Nokia can exceed estimates by approximately 8.7% for the financial year 2015, suggests Deshpande.
Deshpande noted that due to a balanced currency exposure, the Finland-based company will not draw any substantial benefit to its transactional margin from the shift of the euro. However, disclosed exposure in multiple currencies could push Nokia’s EBIT up by 13% year over year in 2015, even without underlying business growth.
Deshpande notes that it is difficult to estimate the full impact of the currency factor owing to a certain degree of hedging. However, he believes that the currency advantages, along with the growth opportunities will be working in Nokia’s favor for years to come.
Nokia royalty revenue portfolio a mystery
Last week, analyst Adnaan Ahmad downgraded Nokia from Buy to Hold. Germany’s Berenberg Bank’s analyst suggested that the network business is turning around, and with shares trading above €7, the investment case is now focused on the royalty revenue stream. According to the analyst, the current value of the business is at least €6 billion, but “consensus estimates on the revenue run-rate for IPR (€1bn-1.5bn) in the next three to five years have caught up with us.”
Berenberg’s analyst feels that Nokia’s royalty revenue portfolio is a “black box” for now and that everyone’s analysis is based on assumptions of assumptions.
Of the 18 analysts covering the stock, eight have recommended a Buy rating and seven have suggested a Hold rating on the stock. On Tuesday, Nokia shares breached their 200-day moving average of $7.98, going as high as $8.01, but eventually they ended the day at $7.95, up 0.89%.
